SaaS Interviews with CEOs, Startups, Founders
LendingPoint Hits $600m ARR, Will Profit $120m on AI platform for consumer loans
07 Apr 2022
Chapter 1: What is the main topic discussed in this episode?
Well, I was going to say, I mean, we can sort of calculate, right? If you had 15 out, you give us 23% minus 10%. That's 100. What is that? 13 points of spread, right? That's nice. It's a good business. So you go, okay, we're onto something. What's next?
Well, then you have these little things called losses, right? Yeah.
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. Hey folks, my guest today is Tom Burnside.
He is leading LendingPoint.com, an AI-driven credit tech lending platform.
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Chapter 2: What is LendingPoint and how does it leverage AI in lending?
He sees the company as a way to do well and do good simultaneously by protecting, nourishing, and growing each consumer's financial future. He does this with over 25 years of experience and a wealth of industry knowledge prior to LendingPoint. He's an accomplished credit and financial services leader and trusted data scientist. Tom leads the rest of the team in serving their borrowers.
their originating financial institutions, their merchants, and other service providers while delivering predictable returns to their capital market providers. Tom, you ready to take us to the top?
We are.
All right. So what gave you this idea? I think back in, was it 2013, the start date?
Well, it was 2014. The end of 2014, we really started funding in 2015. Yeah, what gave us an opportunity is what we were looking at was at a marketplace that was serving some of the credit bands well, really kind of the assets that other banks and otherwise would buy.
What we saw was an opportunity for kind of the more challenged credits to start there, understand that, do it really well through AI, and then continue to broaden our funnel. And so today... Today, we fund all credit bands from 550 all the way up to 850.
But we started in that really that 660 and under space just so we could try to understand them, give them a reasonable price and a reasonable product and tell their story in a way that nobody else was telling it.
So these are folks, if you're listening and you're doing $50,000 a year in annual revenue and you want to take out a $5,000 loan, Tom, something like that, they can check out your offer.
Yeah. 5,000. Now that market goes all the way up to 50,000. So as we got better on the marketing and the better on the understanding of the customer, we've been able to expand the offers.
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Chapter 3: What was the initial target market for LendingPoint loans?
Even back then, the models were doing a really good job of predicting somebody. Typically, what happens in this, this is why we saw the opportunity. In this particular area, you saw a lot of very, very short transactions, 6, 8, 12 months. And we saw an opportunity to give somebody something that was very affordable.
And so we didn't want to go below 24 months, and we were able to get those out as long as 48 months. even back in the day, by taking the AI information and doing a better job of telling the story and therefore giving them something that was affordable. Because one of the problems is if you're paying back $5,000 over 12 months, it's a very expensive payment.
When you start to elongate that out, it becomes very affordable. And you give them the opportunity to get back on their feet and be able to pay back. And now most of those customers have come back to renew with us or come back to take another loan with us. We now have about 30% of the base is in a renewal status with us because we made it affordable.
They were able to pay it back and they're able to take more money.
Just to be clear, if I take that 5K from you in 2014, I pay back worth three to four years. My total interest on that 5K over four years is 1200, right? That's 23% ish, or is it 23% per year?
No, that's roughly. That's roughly about 23 over that period of time.
I see. I see.
Interesting.
Okay.
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Chapter 4: How did LendingPoint's loan offerings evolve over time?
That's not bad. Not too bad. Not too bad. We didn't feel too bad about it. But the good news, the customer is able to get, because we were able to save money, we were able to push that forward to the customer.
No, that's great. I mean, that's exactly why you want to be able to negotiate, obviously, that low-cost capital. Now, was your credit box really tight? Did they really restrict you what states you could lend to, scores above 650 or above, or did you have enough flexibility to actually deploy that capital?
Yeah, we had enough flexibility. I mean, obviously being in this market for quite a while, what we did is we really used more of our own equity. So our advance rates are a little bit lower. So our box was wider so we could test more. So we were able to go right at the market and test it in the best of ways.
We did most of it on our own balance sheet to start with, just so we could prove the concept and the model worked.
So Tom, just to be clear, you raised equity on day one and you were using that capital to test?
To test the market.
How much on day one? Do you remember?
Well, yeah, so what's interesting, the group of team, the team we have here raised about $220 million of friends and family, just really no outside rounds, but friends and family, we raised that over, you know, over about, probably four or five different tranches that we re-raised it, but we didn't really consider them A rounds, B rounds. It was our friends and family coming to the table.
We had other deals that we had done together that worked out well. And so it was relatively easy to raise that. Our first institutional raise didn't actually happen until 2020.
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Chapter 5: What strategies did LendingPoint implement to manage risk and losses?
Well, then you have these little things called losses, right? So you have the cost of capital, but you also have losses, your second largest component. So it was a lean year, but it was a great year of learning, a great year of kind of understanding how our credit models were going to perform and what we needed to augment them to get the losses in line with where we were hoping them to be.
I love this. Okay. So that's a great... Guys, this is year one. You just heard it. Year one. Now let's go fast forward, Tom. 2018. Yeah. How much total capital lent over the prior four years?
What's interesting about it is we hit about 360 or so. Things were starting to grow.
360 million in loans in 2018?
Yeah, the capacity is starting to grow now. We're starting to get in a great place. The models are performing well. We have a couple of different lines of credit now at this point. All of them have been upsized. So now we have access to roughly, I think at that particular point, about $350 to $400 million of capacity at that particular point in time. So life is getting better.
Cost of funds are coming down by a couple of points. So those spreads are widening, which is always good. It helps pay bills.
Mm-hmm. So, I mean, are we talking like you get down to 7% in 2018, 6%, something like that?
It was about 8%. It was about 8% at that point, right? I mean, it wasn't until you really cross over a half a billion dollars of originations a year until pricing really starts to come of real scale.
When did you hit that?
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Chapter 6: How did LendingPoint secure initial funding and what was the impact?
How much was secondary? None. None.
I thought all of it would be secondary. With you printing out $100 million in free cash flow, why wouldn't it all be secondary?
Well, remember, we continue to pour that money back into the business right now to continue to grow it. At the pace we're growing, you need to feed the proverbial beast. So that money keeps going back into the organization. And we have taken no secondary. We have poured all the money back into the company to keep the company growing.
Well, Tom, okay, last question here as we wrap up. How do you keep early employees excited about an eventual payday? You're not public. There's no secondary options. They've been with you since 2014. You maybe use options to recruit them. When are they going to see money?
We're going to let the market, when the market's ready, we'll be ready. We, you know, look, we have an amazing team of people. A lot of these people have worked with me at least two to three other companies. And, you know, they believe in kind of the overall dream and where we're going. And our success is squarely on their shoulders.
When did you hire your last CFO, your current one that's with you? When did you hire him or her? Uh, 2019. Interesting. All right, guys, I expect an S one filing in Q3 this year. You heard it here first, Tom, let's wrap up with, let's wrap up. I'm gonna get him in trouble. Yeah. Tom, let's wrap up here with the famous five. These are easy. Number one, favorite business book.
Um, uh, you know, uh, my, mine is mine is, uh, uh, I'm a Jim Collins fan. Right. Uh, and so anything really Jim Collins writes, I'm a big fan of, uh, good to great. It's probably my favorite.
Number two, is there a CEO you're following or studying?
Yeah. I mean, look, I think Jamie Dimon has got to be the guy, right? He's been very, very much on top of his game.
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